Contracts falling through as buyers react to building report
3 August 2011
Contracts falling through as buyers react to building reports or finance criteria
A significant proportion of real estate sales are falling through presently because of buyers’ concerns over building reports and finance criteria, according to First National’s monthly residential property survey.
The survey shows 43% of the nationwide network's offices reporting conditional agreements falling through and the majority of these blame negative building reports, followed by problems with arranging finance.
First National Group general manager John Stewart says, "For some time now, seemingly over-zealous building inspection reports have been causing buyers concern, frightening them away in many cases.
“The focus on ‘leaky home syndrome’ and what many would call normal wear and tear has in many cases been unreasonable,” he says.
“While one can sympathise with the need for conservative approaches, particularly in view of the inspection companies' own exposure to liability should they miss or understate an issue, I know of far too many instances where reports are, quite frankly, over the top and cause needless buyer concern," Stewart says.
In the Bay of Plenty, a number of First National's offices report contracts subject to the buyers’ own home selling remain the major cause of failure, while some in the lower North Island and Canterbury note the influence of the New Unit Title Act on some buyers’ decisions. This mainly relates to apartments and other shared title situations.
However, in Canterbury, the insurance stand down is noted as the main reason for contracts falling through, an obvious repercussion of the current environment in Christchurch and a factor that will remain a major issue for some time to come.
The survey, which measures listing levels, sales, market trends and overall activity across First National’s nationwide network, found house prices have fallen in July compared with a year earlier across 51% of the country, which is a slight improvement from June’s 57% annual change figure.
The survey found 40% of agencies across the country say house prices are the same, while 9% replied prices are higher.
In the July 2011 survey, 60% of offices say two-bedroom property prices are lower than July 2010, while 51% say three-bedroom home prices have fallen.
Once again, four-bedroom homes are becoming a notable sector in the market after a quiet year, Stewart says.
On a regional basis, First National's sales force generally reports house prices are the same or lower.
In the western region of the North Island, prices are lower for two-, three- and four-bedroom properties, the only region to record across-the-board price falls.
In Canterbury, house prices are consistent with a year ago except for four-bedroom properties in Christchurch, which are experiencing a more positive trend.
The Howick First National office has doubled its sales from a year earlier, as investors and first-home buyers made decisions on houses and sections.
Listings are up 1.3% from June 2011, but down 8.9% compared with July 2010.
Most First National offices report a shortage of properties.
"The buyers are there in numbers noticeably above last year, almost right across the country and in most markets, but vendors just seem afraid to go to market," Stewart commented.
"This is resulting in some fierce competition through multi offers, tenders or at auction, with reports of properties realising above expectation. Vendors' devotion to spring and summer selling remains, to the cost of many this year I fear."
The number of contracts exchanged in July is consistent with June and a year earlier.
Notably, Howick, Stratford, Dargaville, Rotorua, Waikanae and Timaru appear to be bucking this trend and reporting substantial sales growth.
Looking ahead, Stewart believes that, given buyer pressure, well presented and market-priced properties will continue to sell well.
“While the likely slow increase in mortgage interest rates may deter some, well-funded buyers will remain in the market,” he says.
"Presently though, for those sellers who present their homes best in their sector and area, buyer competition is proving to be a rewarding experience. Whether this continues as the likely increase in listings flows in during spring will be an interesting feature of the recovering New Zealand economy."